METRO MANILA鈥橲 two water providers warned of the implication of the government鈥檚 move to revoke the extension of their concession, which they learned only on Wednesday morning, while a foreign business group and an economist said the wider impact on investor confidence bears watching.

鈥淭he revocation of the (Metropolitan Waterworks and Sewerage System) board resolution on the extension of our concession up to 2037 has very serious, grave repercussions on our capability to support water security and also support investments in the compliance of the Clean Water Act,鈥� Ramoncito S. Fernandez, president and chief executive officer of west zone concessionaire Maynilad Water Services, Inc., said in an interview after a hearing at the House of Representatives on supposed onerous provisions in water companies鈥� contracts with the government.

鈥淲hile we were meeting almost [the] whole day, our creditors have already asked us how will this affect [the company]. 鈥榃ill you still be able to pay the loans that you鈥檝e contracted with us long term?,鈥欌�� Mr. Fernandez said.

During the hearing, state agency Metropolitan Waterworks and Sewerage System (MWSS) said its board of trustees had revoked a resolution issued in 2008 and 2009 that approved the extension of the concession of Maynilad and Manila Water Company, Inc.

鈥淭hat鈥檚 the action of the board — the revocation of the 15-year extension,鈥� MWSS Deputy Administrator Leonor C. Cleofas told lawmakers, saying the decision was reached during a Dec. 5 board meeting.

The move revoked the extension until 2037 of the concessions, which was agreed even before the end of the original term in 2022.

Share prices of listed firms concerned fell by more than 13% to multi-year lows: Manila Water shares dropped 13.93% to P12.48 apiece, the lowest in 10 years and seven months; while that of DMCI Holdings, Inc. — which owns a fourth of Maynilad — gave up 13.39% to P5.11 each, the lowest in more than nine years, and that of Metro Pacific Investments Corp. — which owns more than half of Maynilad — went down 13.08% to P3.19 each, the lowest in more than eight years.

Metro Pacific is one of three Philippine subsidiaries of Hong Kong鈥檚 First Pacific Co. Ltd., the others being PLDT, Inc. and Philex Mining Corp. Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., maintains an interest in 大象传媒 through the Philippine Star Group which it controls.

RESPONSE

Antonino T. Aquino, former president of Manila Water and current member of its board, said in the same House hearing that it was also only on Wednesday that he learned about the decision of the MWSS board.

鈥淥bviously it has implications on maybe the recovery period for all of the investments, that鈥檚 one item. And of course for all of those things, you are required that funds have to be borrowed,鈥� he said in an interview after the hearing. 鈥淢ore importantly, we want to make sure that during that extension we鈥檙e able to address from our side new water source that we badly need.鈥�

Mr. Aquino said the company would 鈥渄efinitely make a response.鈥�

During the hearing, he said that since the extension of the contract, the company had implemented its spending plan on the assumption that it could recover its investment for a longer period.

He also said these investments were already factored in the rate rebasing even as early as 2013.

Mr. Fernandez said the extension was signed by the President of the Philippines at that time through the Finance secretary.

鈥淲e will respond formally, as we were given three days to respond,鈥� he said.

Howard Randy A. Arzadon, assistant government corporate counsel at the Office of the Government Corporate Counsel, said the move of the MWSS board came after the directive of Malaca帽ang to cancel the extension. 鈥淭he concessionaires were given three days to give their position on the matter,鈥� the government counsel said.

The extension was approved on Aug. 16, 2008 for Manila Water, and on Sept. 10, 2009 for Maynilad. Gloria Macapagal-Arroyo was president of the Philippines at that time.

The original concession agreement was signed in 1997 during the term of President Fidel V. Ramos between MWSS, which owns the franchise, and Ayala-led Manila Water and Maynilad, which at that time was led by the Lopezes鈥� Benpres Corp. and its French partner. Maynilad, at that time incurring losses, was inherited by its new owners after it was re-bid by the government in 2007.

鈥淎ll the documents from day one came from the government,鈥� said ANAKALUSUGAN Rep. Michael T. Defensor, chairman of the Public Accounts committee, who presided over the hearing.

Asked on the issue of the treatment of the concessionaires鈥� corporate income tax as an expense to be recovered from their customers, Maynilad鈥檚 Mr. Fernandez replied: 鈥�… [It] is our desire, in deference to the President, to come up with a workable solution together with the government.鈥�

WHO IS RESPONSIBLE FOR THE AGREEMENT?

Presidential Spokesperson Salvador S. Panelo said in a statement Tuesday evening the President will soon read in public the letters sent him by both concessionaires.

“The Chief Executive will read the letters of Maynilad and Manila Water before the public for transparency and to show that all the steps being undertaken by the government in resolving this issue with the two Metro Manila water concessionaires are aboveboard and legitimate,” Mr. Panelo said.

“These companies not only have inefficiently delivered water to the households but exacted unconscionable amounts from the taxpayers,” he added.

“The President will evaluate this development, as well as study the practical and legal consequences of the situation, before making any decision on what measure to undertake next.”

In a separate hearing in the Senate, however, a former MWSS chief recalled that the government had to turn to foreign consultants, including the World Bank Group, for the drafting of the water concession agreement since no one in the country had any experience in this issue.

Former administrator Angel L. Lazaro III, who led the MWSS at the time of then president Fidel V. Ramos, said considering the agency had no prior experience, it consulted the World Bank in drafting the contract.

鈥淲ho is responsible for the concession agreement?鈥� Mr. Lazaro said during a Senate hearing, which tackled ongoing concerns on water supply shortage, Wednesday.

鈥淭he concession agreement was drafted by our consultants kasi nung 1996 wala naman kaming alam (because we knew nothing about this subject in 1996).鈥�

Mr. Lazaro explained the draft was later approved by the MWSS Board of Trustees, where he served as vice chairman, and later reviewed by a special advisory council formed by Mr. Ramos.

Senator Grace S. Poe-Llamanzares, as chairperson of the Senate Public Services committee, cited the need to talk next with those who drafted the contracts.

鈥淲e have to know who drafted the contract to make it disadvantageous to us,鈥� Ms. Llamanzares said in a briefing after Wednesday’s hearing.

鈥�Ngayon, meron bang liability ‘yyung concessionaires? Kung pinirmahan nila pero tayo naman 鈥榶ung nagbigay nun, ang may kasalanan nun 鈥榶ung gobyerno. (Now, do the concessionaires have any liability? If they signed contracts which the government itself offered them, then it is the government who is at fault).”

CLEAN SLATE

Before the revocation of concession extension, Maynilad was awaiting an unresolved claim on the Republic of the Philippines. On Dec. 29, 2014, Maynilad鈥檚 water tariff under the rate rebasing for the period from 2013-2017 received a favorable award in arbitration proceedings in the Philippines. But the MWSS did not implement the awarded tariff increase. The company proceeded to arbitration in Singapore and the final hearing was completed in 2016.

On July 24, 2017, a three-person arbitral tribunal unanimously upheld the validity of Maynilad鈥檚 claim against the undertaking letter issued by the Republic, through the Finance department, to compensate Maynilad for the delayed implementation of its tariffs for the rebasing period.

The tribunal ordered the Republic to reimburse Maynilad P3.4 billion, but later adjusted to P3.2 billion, for losses from March 11, 2015 to Aug. 31, 2016. It also ruled that Maynilad is entitled to recover from the Republic its losses from Sept. 1, 2016. Mr. Fernandez said the company had not move to enforce the award nor compel the government to pay.

Meanwhile, Manila Water said on Nov. 29, 2019 that it had received the award rendered by a separate arbitral tribunal in the proceedings in Singapore between the company and the Republic.

The Permanent Court of Arbitration ruled that Manila Water has a right to indemnification for actual losses suffered by it on account of the Republic鈥檚 breach of its obligation. It ordered the Republic to indemnify Manila Water the amount of P7.39 billion representing the losses it suffered from June 1, 2015 until 22 Nov. 22, 2019, plus other costs.

On Tuesday, officials of both companies said they were willing to waive their collection of the separate arbitral awards.

Mr. Fernandez said the 鈥渞ationale鈥� of Maynilad鈥檚 decision was that its chairman, Manuel V. Pangilinan, wanted that the company was willing 鈥渢o start with a clean slate.鈥� He said the company was willing to cooperate and discuss with the government 鈥渉ow to move forward.鈥�

Mr. Aquino said that revocation of the concession鈥檚 extension was a more 鈥渄isturbing鈥� development. He said he hoped the company and the government would be able to come up with a 鈥渨orkable solution鈥� to avoid further conflict and ensure a 鈥渇air return to whatever investments that we make.鈥�

INVESTOR IMPACT

For European Chamber of Commerce of the Philippines President Nabil Francis, 鈥淪tability and predictability or the regulatory environment are crucial factors for investors.鈥�

鈥淐hanging the rules in the middle of the game will send a negative signal to potential and current investors. This will also significantly affect investor confidence as well as the attractiveness of the Philippines as an investment destination,鈥� he said via text when asked for comment.

Bienvenido S. Oplas, Jr., president of think-tank Minimal Government Thinkers, said this latest development in the government鈥檚 move on Metro Manila鈥檚 water service providers would have a 鈥渧ery negative鈥� impact on investor confidence.

鈥淚t鈥檚 very negative because… FDI (foreign direct investment) is long term… among the main requirements of FDI is stability of policy, respect of contract,鈥� Mr. Oplas said in a telephone interview.

鈥淥nce you say you have a concession for say, 20 years, 30 years, it should be honored because they鈥檙e going to put in big money and you cannot just pull it out any time,鈥� he added.

鈥淭he message for all foreign investors around the world is that this administration can change rules any time, arbitrarily…鈥�

Speaking to reporters in a briefing in Malaca帽an Palace, Socioeconomic Planning Secretary Ernesto M. Pernia said, however, that much depends on the quality and fairness of contracts.

Referring to 鈥渢he sanctity of contracts,鈥� Mr. Pernia said that 鈥渋f they are not saintly… then they have to be revised.鈥�

鈥淎s long as we are implementing correct policies, fair policies… that should lure investors.

Asked separately, presidential spokesman Panelo replied: 鈥淭he opposite is true.鈥�

鈥淚nvestments will pour in because investors will feel secure that the Duterte presidency will not tolerate corruption and false narratives,鈥� Mr. Panelo said in a mobile phone message.

鈥淯scrupulous investors will shy away because jail term will await them.鈥� — with Charmaine A. Tadalan and Gillian M. Cortez

鈥淚f you ask him, death by hanging is cheaper,鈥� presidential spokesman Salvador S. Panelo said at a briefing in Manila. 鈥淏ut I think we will stick with the old method of using lethal injection,鈥� he said in Filipino.

Mr. Duterte in his annual address to Congress on Monday said drug traffickers must be put to death, noting that the illegal drug menace persists despite his deadly war on drugs that has killed thousands.

鈥淚 am aware that we still have a long way to go in our fight against this social menace,鈥� the president told lawmakers. 鈥淭hat鈥檚 the reason why I advocate the imposition of the death penalty for crimes related to illegal drugs.鈥�

Reinstating capital punishment will be among the priority bills of the Legislative-Executive Development Advisory Council (LEDAC), Senate President Vicente C. Sotto III told reporters.

鈥淚f it is confined to high-level drug trafficking, it stands a good chance,鈥� the senator said. 鈥淚t could be a squeaker, but it could pass in the Senate.鈥�

Meanwhile, Justice Secretary Menardo I . Guevarra said capital punishment might deter some serious crimes.

鈥淭he fear of being put to death for the commission of a crime will naturally prompt a criminally minded person to think twice,鈥� he said in a text message.

Philippine National Police chief General Oscar D. Albayalde for his part said something needs to be done to the justice system to ensure innocent people won鈥檛 suffer. Law enforcers, he added, make mistakes during operations.

Being able to execute criminals 鈥渨ill be a game changer in our continuing campaign against illegal drugs,鈥� he said, even as he admitted that Congress won鈥檛 restore the death penalty without putting safeguards.

The Philippines became the first Asian country to abolish the death penalty for all crimes, but it was reintroduced in late 1993 for 46 different offenses, according to Amnesty International.

Executions resumed in 1999 after 23 years, according to the London-based group focused on human rights. Former President Joseph E. Estrada in 2000 announced a halt on executions, which his successor ex-President Gloria Macapagal Arroyo continued.

The Philippines under Mrs. Arroyo again suspended capital punishment in 2006 through a law. Before that, she commuted the death sentences of 1,230 inmates to life imprisonment, which Amnesty International said was the 鈥渓argest ever commutation of death sentences.鈥�

In 2007, the country became a party to the Second Optional Protocol to the International Covenant on Civil and Political Rights regarding the abolition of the death penalty.

鈥淭he death penalty is the ultimate cruel, inhuman and degrading punishment,鈥� Amnesty International said on its website. 鈥淎mnesty opposes the death penalty in all cases without exception 鈥� regardless of who is accused, the nature or circumstances of the crime, guilt or innocence or method of execution.鈥� 鈥� Vann M. Villegas, Vince Angelo C. Ferreras and Arjay L. Balinbin

Senior Associate Justice Mr. Antonio T. Carpio in a statement refuted the president’s claim, noting that China “is in possession of seven features in the Spratlys plus Scarborough Shoal,”

“In addition, during the Duterte administration, China seized Sandy Cay from the Philippines,” the magistrate said, adding that the total area of these geologic features, including their territorial seas is less than 7% of the South China Sea.

Mr. Carpio said foreign naval powers such as the United States, United Kingdom, France, Australia, Japan, and Canada continuously sail and conduct naval drills in the South China Sea, which shows that China is not in possession of the waterway.

Mr. Duterte in his annual state of the nation address to Congress on Monday said the Philippines is not in a position to assert its rights in the disputed sea because China is in possession of it.

He blamed Benigno S.C. Aquino III, his predecessor, for allegedly giving way to China after a 2012 standoff in Scarborough Shoal that later allowed the regional power to occupy the shoal.

China has been building artificial islands in the disputed Spratly Islands and setting up installations including several runways. China claims sovereignty over more than 80 percent of the waterway based on its so-called nine-dash line drawn on a 1940s map.

President Duterte has sought closer investment and trade ties with Beijing, including over resources in the South China Sea, since taking power in 2016.

His predecessor sued China before an international arbitration tribunal over its territorial claims, and won. He also strengthened Philippine alliance with the US to try to check China’s expansion in the main waterway.

In his speech, Mr. Duterte also said China has “traditional fishing rights” which Mr. Carpio also refuted. The magistrate said there can be no traditional fishing within the Philippines’s exclusive economic zone.

“This is very clear in the arbitral award of July 12, 2016,” he said. “Reed Bank is part of Philippine exclusive economic zone. There can be no traditional fishing in Reed Bank.”

Meanwhile, Senate President Vicente C. Sotto III said the Philippines should allow Chinese fishermen in the disputed area provided the Philippines is also allowed there.

A Chinese fishing vessel allegedly rammed a Filipino fishing boat near the Reed Bank and abandoned the 22 Filipino crew members in the sea after the ship sank.

Majority of Filipinos think that the Philippines should regain control of disputed islets occupied by China, according to a Social Weather Stations (SWS) poll in June.

Such sentiment has grown steadily in the past four SWS polls in the past year, according to the report e-mailed late Wednesday.

The polling company said 93 percent of Filipinos think the country should recover the islands in the disputed South China Sea, based on a June 22 to 26 poll. The proportion has risen from 89 percent in December, and 87 percent in earlier polls last year. 鈥� Vann M. Villegas and Charmaine A. Tadalan